NEW YORK — Wall Street shifted into reverse Tuesday after a surprisingly weak retail sales report punctured the market's optimism about the economy.
The poor sales data, combined with a sharp drop in wholesale prices, overshadowed better-than-expected earnings reports from Johnson & Johnson and Goldman Sachs, leading the Dow Jones industrial average down 137.63, or 1.7 percent, to 7,920.18, according to preliminary calculations.
Broader measures also lost ground after three days of gains. The Standard & Poor's 500 index fell 17.22, or 2 percent, to 841.51, and the Nasdaq composite index fell 27.59, or 1.7 percent, to 1,625.72.
Financial stocks were especially weak after Goldman said it would raise $5 billion to repay government bailout money. Investors speculated that other major banks might follow suit, which would put pressure on their stocks. Citigroup Inc. and JPMorgan Chase & Co. are also due to report results this week.
Tuesday's selling was orderly and extended a give-and-take pattern the market has followed since halting a steep slide in early March. Stocks have risen from 12-year lows since then on hopes that banks are getting through the worst of their problems and the economy might be bottoming out.
Jeffrey Frankel, president of Stuart Frankel & Co. in New York, said he would be more concerned if the market's rally had continued unchecked given the problems facing the economy and the likelihood that any recovery will be slow.
"This is healthy. You don't want to go straight up," he said.
The unexpected slump in retail sales, which fell 1.1 percent in March, undermined the market's brightening outlook for the economy. The drop was far worse than the increase of 0.3 percent that analysts polled by Thomson Reuters had been expecting and marked the biggest fall in three months. Investors watch retail sales trends closely as a barometer of consumer spending, which makes up two-thirds of U.S. economic activity.
"The choppy data that we're seeing, whether it's economic or earnings, reminds us that we're still not out of the woods," said Sean Simko, head of fixed income management at SEI Investments in Philadelphia. "The market always has a tendency to go too far too fast."
Investors took little comfort from speeches by President Barack Obama and Federal Reserve Chairman Ben Bernanke that there have been hopeful signs about the economy and that a sustained recovery won't arrive quickly.
A separate report on wholesale prices released Tuesday gave another poor reading on the economy.
The Labor Department said wholesale prices tumbled 1.2 percent in March as the cost of gasoline, other energy products and food fell sharply. Falling prices fan worries about a spiraling effect where consumers and businesses would halt spending out of fear that they would pay too much for something today that could be worth less tomorrow.